Hang Seng Rally Stalls; Tencent and Alibaba Earnings Become Key Catalysts for Hong Kong Tech Stocks

Hang Seng Rally Stalls; Tencent and Alibaba Earnings Become Key Catalysts

Recently, the Hang Seng Index has shown signs of fatigue after a brief rebound. Market sentiment has been fluctuating amid shifting expectations for a Fed rate cut, rising geopolitical risks, and mixed economic data from mainland China. With Tencent Holdings (00700.HK) and Alibaba Group (09988.HK) set to release their quarterly earnings, the performance of these tech giants is becoming a key variable determining the short-term direction of the Hang Seng Index.

Momentum Fades: Investors Stay on the Sidelines

Since rebounding from recent lows, the Hang Seng Index has reclaimed some key psychological levels, but trading volumes have failed to expand, indicating limited interest from new capital. According to public data from the Hong Kong Stock Exchange, net buying by southbound funds narrowed during the rebound, reflecting mainland investors' skepticism about the sustainability of Hong Kong stocks' valuation recovery. Meanwhile, overseas funds remain cautious toward Chinese tech stocks, with some hedge funds reducing positions ahead of the earnings season.

From a technical perspective, the Hang Seng Index has encountered significant selling pressure near key resistance levels. Market analysts note that a clear catalyst is needed for the index to break out of its current range—and Tencent and Alibaba's earnings are the most anticipated signals.

Tencent: Can Gaming and Advertising Drive Growth?

As the heaviest weighted component of the Hang Seng Index, Tencent's performance has a significant impact on the index. The market is closely watching the recovery of its gaming business following the normalization of game license approvals, as well as the boost to advertising revenue from the commercialization of its video accounts. According to data from industry research firm Sensor Tower, several of Tencent's core games have maintained stable revenue in overseas markets, but the pace of new game launches in China remains to be seen.

Additionally, Tencent's investments in AI have become a focus for investors. Although the company has not yet disclosed AI-related revenue separately, the market expects its large language model to gradually contribute incremental gains in areas such as ad recommendations and cloud services. If the earnings report shows improved gross margins or better-than-expected capital expenditure guidance, it could boost confidence in a profit turnaround for the tech sector.

Alibaba: Cloud Business and Buyback Plan in Focus

Alibaba's earnings are also drawing market attention. After undergoing organizational restructuring and business reorganization, the market is looking for signs of resilience in its core e-commerce business amid low-price competition, and whether Alibaba Cloud can sustain its growth momentum. According to public earnings call transcripts, company management previously emphasized increasing investment in AI infrastructure, and the effectiveness of this strategy will be partially reflected in the upcoming earnings report.

Another key variable is Alibaba's share buyback plan. As of the last quarter, the company had already repurchased a significant number of shares. If the upcoming earnings report announces an expansion of the buyback program or an increase in dividends, it could provide direct support to the stock price. However, investors should also watch whether losses in its international business and local services are narrowing.

How Will Tech Giants' Earnings Affect the Hang Seng Index?

Tencent and Alibaba together account for over 15% of the Hang Seng Index's weighting, so their earnings results will directly impact the index through the weighting effect. More importantly, the performance of these two companies is often seen as a barometer for the health of China's consumer and tech sectors. If earnings show stabilizing revenue growth and improving profit margins, it could drive a valuation recovery for the entire tech sector, helping the Hang Seng Index break through its current resistance range.

Conversely, if earnings disappoint—especially if growth in emerging businesses like advertising and cloud services falters—market concerns about tech stocks' profit prospects could intensify, leading the Hang Seng Index to test support levels again. Additionally, management's outlook and regulatory developments following the earnings release will also influence market sentiment.

Outlook: Waiting for a Catalyst

In the short term, the Hang Seng Index is likely to remain range-bound, awaiting clear signals from the earnings season. Historically, the index has often moved 2%-5% after tech giants release their earnings. Investors should focus on key metrics such as Tencent's net profit margin changes, Alibaba's free cash flow, and both companies' guidance for the second half of the year.

Over the medium to long term, the direction of Hong Kong stocks will depend on the pace of mainland China's economic recovery, the path of Fed monetary policy, and the evolution of geopolitical risks. But for now, Tencent and Alibaba's earnings are undoubtedly the most anticipated variables for the market.